Retirement & Financial Planning Report

An Employee Benefits Research Institute study shows how participating in a defined contribution type savings program such as the TSP over a long period increases a person’s chances of financial security in retirement.

The study said that for workers who participate in such plans for 30 years, the growth of such savings plus Social Security alone would allow more than 80 percent to replace at least 60 percent of their pre-retirement income, taking inflation into account. About 75 percent would be able to replace 70 percent of that income and about 67 percent would be able to reach an 80 percent replacement rate.

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The percentages rise by several points in each category for savings programs that feature an automatic enrollment with an automatic employer contribution of at least 1 percent of salary—features that the TSP has for FERS employees—the report added.

The presence of a defined benefit accrual at age 65 increases the probability of not running short of money in retirement by about 12 percentage points; it is particularly valuable for the lowest-income workers but also has a strong impact on others, it said.